All posts tagged IBM

In 2013, it may be heresy to say this, but sometimes buy and hold really does make sense. Forget risk parity, tactical portfolio management, structured notes and all that other Wall Street marketing shtick of the moment.

Case in point – IBM.

Going into today’s session, where the stock is up thanks to yet another solid earnings quarter, IBM shares have provided an annual average total return of 15.6% over the last 5 years, according to Morningstar. (For those with typical short memories, that includes the financial crisis). Over the last ten years, IBM’s total return is 10.2% a year.

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The Breakfast Briefing

IBM is set to add even more fuel to the Dow’s big rally that has kicked off the new year.

Big Blue’s better-than-expected results pushed shares up more than 4% in after-hours trading. If the gains hold through the opening bell – which of course is no guarantee — IBM alone will be poised to add more than 60 points to the price-weighted Dow Jones Industrial Average.

The Dow is up 4.6% in January, its best start to a year since 1997, according to WSJ Market Data Group, leaving the blue-chip average about 450 points away from its record high hit in October 2007.

What’s more, IBM’s upbeat results could have a lasting impact. Over the last 10 years, IBM’s one-day reaction to earnings has accurately predicted the market’s direction over the ensuing five weeks 75% of the time, including each of the last four reports, according to Bespoke Investment Group.

When IBM shares have risen after earnings, the market has typically followed, and vice versa.

Bespoke cofounder Paul Hickey says the trend isn’t exactly a fluke. “IBM generates more than half of its revenues from its services unit, which has a presence in practically every S&P 500 company,” he says. “Any weakness in the performance of corporate America (or even the corporate world) will likely show up in the results of IBM. So if IBM has a strong quarter, it is likely the result of strength in corporate America.”

IBM and Google’s results should help keep the stock market’s rally chugging along.

The S&P 500 is riding a five-day winning streak and has risen in seven of the last nine trading sessions. Mixed economic readings, flattening corporate profit growth and fiscal worries in Washington so far haven’t inhibited the rally’s momentum.

But one worry that could derail the rally right now is rising giddiness among market participants. Skeptics say investor euphoria could spell trouble down the road.

“The area of concern and the most significant threat to the current rally is rapidly rising investor optimism,” says Bruce Bittles, chief investment strategist at R.W. Baird & Co. “Investor psychology is close to slipping into the extreme optimism zone that in the past has caused rallies to stall.”

He notes several investor sentiment gauges last week “indicated the highest level of optimism since last September, when the summer rally began to slow.”

Until then, the focus will remain on the earnings parade that is now in full swing. Quarterly results from Apple Inc. and Netflix Inc. due after today’s closing bell should set the stage for the market’s next move.

Morning MarketBeat Daily Factoid: On this day in 1973, President Nixon announced an agreement had been reached, putting an end to the Vietnam War.

Apple is expected to report first-quarter earnings of $13.43 a share, according to a consensus survey by Thomson Reuters.

McDonald’s is forecast to report fourth-quarter earnings of $1.33 a share.

Netflix is projected to report a loss of 13 cents a share in the fourth quarter.

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Banker’s Latest Bet: Teamwork on Bonds: “Texas banking tycoon Andrew Beal is known for making unconventional moves, including gambling on high-stakes poker and a self-financed plan to launch rockets into space. His latest gambit: an attempt to wring money from giant banks by banding together aggrieved bondholders.”

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IBM shares are rising in late trading, after Big Blue surprised the Street with an earnings report in which it topped expectations on both the top and bottom lines.

IBM reported fourth-quarter earnings of $5.83 billion, or $5.13 a share, up from $5.49 billion, or $4.62 a share, a year earlier. Operating earnings, which exclude retirement-plan costs and amortization, rose to $5.39 a share from $4.71 a share.

The Street pegged operating earnings at $5.25.

Revenue slipped 0.6% to $29.3 billion, and was flat when adjusted for currency fluctuations, although it still came in above analyst expectations, breaking a string of five straight quarters in which it missed analyst consensus views.

IBM is scheduled to report its fouth-quarter results Tuesday after the closing bell. If the past is any guide, investors’ reaction could be noisy.

IBM shares have lurched sharply following its past six quarterly reports, and with the blue-chip stock’s big weighting in the Dow Jones Industrial Average, the moves (ranging roughly 4%-7% in the subsequent session or two) have either left a big dent or provided a large boost in the index.

There’s been a consistent quarterly up-down-up-down-up-down pattern to the market reaction, hinting at an up move due if pattern holds. Shares are up about 5% from a recent mid-November low.

When Big Blue reports fourth-quarter earnings after the bell today, it’s expected to show a rise in earnings and a slide in revenue, signs that the big tech bellwether is having trouble finding new levers to pull.

“IBM has a rich mix of strategic software/services revenue, we believe Big Blue is running-out-of-levers to sustain its customary ~10% EPS growth, said ISI Group analyst Brian Marshall. The challenge for IBM is finding enough new business to sustain what had long been its staple: double-digit earnings growth.

The Street expects that double-digit growth to continue this afternoon. IBM is expected to report earnings per share of $5.25 and revenue of $29.12 billion, according to FactSet. The EPS would be an improvement from last year’s $4.71 a year ago, and a roughly 11% growth rate, but the revenue would mark a slide from $29.49 billion a year ago.

IBM’s sway on today’s trading is poised to go down in the history books.

After some number crunching, our research team at WSJ Market Data Group has found that IBM’s drag on the price-weighted Dow Jones Industrial Average may go down as one of the biggest one-day weights in at least the last 10 years.

The last time a blue-chip component hurt the index that much in a single day’s action was June 21, 2004, when Merck fell by $12.07, according to WSJ Market Data Group. Based on the divisor at that time, Merck’s decline lopped 89 points off the Dow that day.

Big Blue reported third-quarter revenue fell to $24.7 billion, down 5.4% from a year ago. The results fell fell short of the $25.3 billion figure analysts polled by Thomson Reuters were anticipating. The revenue shortfall marked the fifth straight quarter IBM's top line has come in below analysts' expectations.

IBM also blamed currency fluctuations for hindering revenue by $1 billion in the latest reporting period. Worries about a slowdown in technology spending due to difficult global macroeconomic conditions have contributed to weak revenue growth in recent quarters.

Shares are down 3.5% to $203.66 in after-hours trading. The stock was up 15% this year through Tuesday's close and hit a record high of $211.79 earlier this month.

IBM and Intel report earnings after the bell. Here are the important numbers and angles to keep in mind. All numbers are via FactSet.

IBM

Earnings: Street consensus is for EPS of $3.44 ($3.61 on a non-GAAP basis) on sales of $25.38 billion. A year ago, the company earned $3.19 a share ($3.28 on a non-GAAP basis) on sales of $26.16 billion.

Keep in mind: IBM has been one of the bluer of the blue-chips, with shares up in a nearly unbroken line since the depths of 2009, and currently sitting just below its all-time high. IBM isn’t the only company dealing with declining sales, but it’ll be interesting to see how it hammers that into rising profits.

UPDATE: The sale went through, and IBM did hit the record, selling the bonds with a 1.875% coupon.

This is sort of nuts.

IBM is looking to auction off $1 billion worth 10-year bonds at a record low interest rate, underneath 2%. That this is even possible is a combination of two things: one, the Fed’s taking the rate curve and pinning it to the floor. Also there is great demand for anything that smells like a safe haven.

In terms of corporate debt, it’s hard to find a safer bet than IBM.

To put that in perspective, the U.S. government is currently selling 10-year bonds with an interest rate of 1.40%, so IBM, only 60 basis points off U.S. government debt, is judged nearly as safe a bet as the U.S. government.

The markets have been erratic lately, for sure. But erratic trading patterns in four blue-chip stocks on Thursday showed a bizarre correlation, setting the market chateratti abuzz on an otherwise quiet summer afternoon.

Dow components Coca-Cola, IBM, McDonald’s, as well as Apple (which isn’t in the Dow) all traded with the same sawtooth pattern of rapid, tight swings throughout the trading day.

The pattern was almost identical for the four stocks: down for half an hour, up for half an hour; down for half an hour, up for half an hour. Even more curious: The peaks all came at the half-hour mark, and the lows all came at the start of the new hour.

We looked at a number of other stocks and didn’t find the trading action repeated anywhere else. And the volume of stocks traded weren’t out of the ordinary.

The Dow is up 29 points, or 0.2%, to 12938 in recent trading. IBM is the big winner, rising 3.9% to $195.59 after the tech giant boosted its full-year earnings outlook. IBM alone is accounting for a 55-point gain on the price-weighted Dow. So if Big Blue were stripped from the index, this morning’s slim gain would be non-existent.

Boeing and Alcoa shares are each up 1%, while American Express is leading on the downside, falling more than 4%. Telecom operators Verizon and AT&T are also keeping the Dow’s gains in check, as each are down by more than 1%.

Meanwhile, all of today’s economic data came in worse than expected. Jobless claims surged, existing home sales surprisingly dropped and the Philly Fed regional manufacturing report didn’t rebound as much as economists had hoped.

And the mess in Europe continues to get, well, messier. Yields on Spain’s 10-year bond jumped above 7% this morning following a Spanish bond auction, while the euro ticked a tad lower to $1.2248.

IBM shares are up modestly in late trading after a mixed earnings report that saw the bottom line rise and the top line contract, while the company raised its full-year profit forecast.

IBM reported net income of $3.9 billion, or $3.34 a share, up from $3.7 billion, or $3.30 a share. On an operating basis, earnings were $3.51 a share, better than Street consensus of $3.42. But revenue of $25.8 billion fell 3% from a year ago, and missed Street expectations of $26.28 billion.

It was the fourth straight quarter in which the top line missed estimates.

Investors are not particularly impressed; shares are up 1.7% in late trading at $191.50.

Among the company’s divisions, revenue for the services unit fell 2%, was flat in the software division, and fell 9% in hardware.

Revenue in the Americas — IBM’s largest market — was down 1%, and up 1% adjusting for currency impacts. Total sales in Europe, the Middle East and Africa decreased 9%, and was flat when adjusted for currency. Total revenue in Asia gained 2%, or up 4% adjusted for currency.

The company’s margins were better: gross profit margin rose to 47.6% from 46.4%. The company also noted that operating expenses were down 6%, to $7 billion. Combined with the revenue drop, you can draw the conclusion that IBM wrung that profit gain out of cost cutting rather than expanding its business.

The company did boost its earnings forecast for the year, however. The company expects 2012 EPS will hit $14.40, up from its previous estimate of $14.27 ($15.10 vs. $15 on an operating basis).

IBM, eBay, and Yum Brands all report earnings after the bell. Here are the important numbers and angles to keep in mind.

IBM

Earnings: Street consensus is for quarterly EPS of $3.42, on revenue of $26.28 billion, according to Thomson Reuters. A year ago, the company posted operating earnings, which exclude retirement-plan costs and amortization, of $3.09 a share. IBM reported revenue of $26.67 billion this time last year.

Keep in Mind: Big Blue has benefited from its push toward higher-margin, complex businesses such as business analytics. Software and services revenue has improved in recent quarters, but worries have intensified about how the slowing macroeconomic environment could weigh on overall business tech spending.

IBM’s revenue has been lighter than expected for the past couple of quarters. In particular, the company’s hardware division has declined throughout the last two quarters. IBM has warned that the division will likely have a tough comparison in the second quarter.

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MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what’s happening in the markets. Lead writers Paul Vigna and Steven Russolillo spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to paul.vigna@wsj.com or steven.russolillo@wsj.com.

Global investment banks got a second-quarter revenue boost from a surge in Asian stock trading. But given China’s market volatility and stock declines in some other countries, those revenue gains may be hard to replicate.